Entire capital gains have to be included without computing benefits of indexation while computing 'book profits'

Suraj R. Agrawal

Dharmayug Investments Ltd vs. ACIT (ITAT Mumbai)

While computing the “book profits” as per S. 115JB the entire capital gains have to be included without computing the benefits of indexation.

Facts of the case:

1. The assessee company is engaged in the business of investments, leasing and broking business.
2. The return of income was filed on 29.09.2009 declaring total income of Rs.24,10,290/- under the normal provisions of the Act.
3. Since the tax liability as per the provisions of section 115JB was higher, therefore, taxes were paid as per book profit computed u/s. 115JB.
4. As per the computation of book profit, the income was declared at Rs.21,63,16,156/-.
5. While computing the tax liability u/s. 115JB, the assessee had shown capital gains on sale of shares of HDFC Bank in the month of March 2009, which was claimed as exempt from tax u/s. 10(38) under the normal provisions of the Act.
6. In the computation of income and notes forming part of computation of income, the assessee had shown Long term capital gain claimed as exempt u/s. 10(38) at Rs.1,72,55,70,760/-.
7. Assessee stated that the Long term capital gain to be included in the book profit should be Rs.1,72,55,70,760/- which is calculated as per Income tax act (after taking indexation benefit).
8. The AO held that the Long term capital gain after indexation and the deduction of STT paid cannot be accepted for the purpose of computing book profit u/s. 115JB but the entire sale consideration.
9. Accordingly, AO included the entire sum of Rs.2,04,94,71,614/- while computing the tax u/s. 115JB and for the purpose of income tax, he computed Long term capital gain was taken at Rs.1,72,81,35,774/-.

Issue put before Honorable Mumbai Bench: